Day Trading Re-visited

[adios]

Ok who around here is day trading? I'll bet you're having a good run over the last 3 months. Seems to me that part of successful day trading is simply avoiding certain days. Actually it amounts to quite a few days. Take yesterday, it wasn't hard to figure out that bonds were going to rally strongly or the indexes were going to get clobbered. Admittedly much of the move was pre-market but I would guess there was still another 1.5% after the opening. Today seems like a day if you're just patient and stay on the sidelines you'd catch this rally.

[RiverMel]

You're right, it's very easy to make a big profit if you just avoid the bad days. Luckily I have a crystal ball that tells me ahead of time what days are going to be "bad."

[adios]

Ok fair enough. How much will you sell your crystal ball for?

[gilly]

Exactly how do you plan on avoiding those risky days?

Day trading is extremely risky, no matter how you look at it. Any kind of "market timing" activity is risky (and more often then not a bad idea).

[adios]

I'll start with today (although I just got around to reading your post). Big drop on Monday, snap back rally on Tuesday, so today I'd expect a neutral day not worth getting involved in. The market has rallied off a point where it's rallied before about 800 on the S&P. One thing I've noticed is that once a trend seems to be established for a day it seldom reverses at the end of the day. I fully concede that I'm probably wrong but I can't help thinking there are those who do time the market successfully. Of course they're not going to reveal anything.

[Wildbill]

Actually there have been plenty of days like that Tom in recent months. Days that just looked horrible all morning and then in the last two hours got the market back to even or ahead. Further unless you are just trading the indexes up or down days don't necessarily mean you are participating in the move as you would expect.

Problem with day trading is the limited timeframe and the fractional trades now. Used to be scalpers could make a nice living just picking up quarters or eighths. Without fractions its become a more volatile market for them and the people that just nickeled and dimed the market have it a lot tougher. Back in the mid 90s just before the internet trading boom, it was estimated that at least 30% of what we would describe as day traders were doing just that, effectively trying to make a living being market makers and the loss of fractionals killed most of the value of trying to be a market maker even if you lacked the backing of a bank's money.

What many people don't know is that day trading can emcompass so many different styles and securities or futures. Its hard to make guesses at who is doing well based on the performance of widely followed, but thinly day-traded indices. While many less than professional people try to trade the cube or diamonds, the best traders tend to follow less deep markets where they can find models and systems that give them better edges, or so they hope.

[adios]

"Actually there have been plenty of days like that Tom in recent months. Days that just looked horrible all morning and then in the last two hours got the market back to even or ahead. Further unless you are just trading the indexes up or down days don't necessarily mean you are participating in the move as you would expect. "

Ok I had something a little different in mind but you're right (like today). I wouldn't trade anything but the QQQ or SPY that way. Also just for the record a bad day is not necessarily a down day.

"Problem with day trading is the limited timeframe and the fractional trades now. Used to be scalpers could make a nice living just picking up quarters or eighths. Without fractions its become a more volatile market for them and the people that just nickeled and dimed the market have it a lot tougher. Back in the mid 90s just before the internet trading boom, it was estimated that at least 30% of what we would describe as day traders were doing just that, effectively trying to make a living being market makers and the loss of fractionals killed most of the value of trying to be a market maker even if you lacked the backing of a bank's money."


That's a great point. I agree that the markets are more volatile although I don't have stats available to support that. That's why I believe that there are some who are savvy enough to take advantage of the volatility.

"What many people don't know is that day trading can emcompass so many different styles and securities or futures. Its hard to make guesses at who is doing well based on the performance of widely followed, but thinly day-traded indices. While many less than professional people try to trade the cube or diamonds, the best traders tend to follow less deep markets where they can find models and systems that give them better edges, or so they hope."

Interesting. I don't doubt what you state here but would like to learn more about that so elaborate if you'd be so kind.

[Wildbill]

Futures are a good example, all the commodities come to mind. What happens there is people assume mostly supply/demand driven numbers, but a good trader sees it as a market that is driven by reaction to news which leads to the clear conclusion that it is emotional driven short-term, rational in the long-term (which in these markets is a matter of days). Since futures is so leveraged, the risks are obviously magnified, but technical traders who do well can make lots of money. This survival of the fittest though churns through lesser competitors quite quickly. As some say though, they couldn't make it any market anyways.

A good trader who I talk with occasionally says the reason why cubes and diamonds aren't really for the serious day trader is that while sentiment obviously plays a role in the market, its not really a "clean" signal. Since indexes are merely a reflection of a basket of stocks, the true signal is really an amalgamated sentiment for many traders in different issues that trade on different fundamentals. Another key is that obviously volatility is the thing that makes a trader's life good and while volatility in the indexes has been much more than before, it still doesn't match the volatility in single names or in the futures, so a good trader that can handle risk and has the funds will always end up gravitating to those issues for his trading.